Company Profile

 

Manappuram Finance Limited (MFL) is a listed non deposit taking Non Banking Finance Corporation (NBFC). MFL is a flagship company of Manappuram group, established in Thrissur (Kerla) in 1992.

The main activity of the company is to lend against the pledged gold assets such as used household jewellery. As of 31st of March 2011, 97.62% of the total revenue comes from gold loan business. With a strong network of 2,192 branches and staff strength of 16,751, today MFL is one of the strongest lenders in gold loan market.

 

Business analysis

 

MFL is focused more on rural and semi urban areas for loan disbursals. Its customers, mainly, belong to the unorganised sector and typically borrow to meet their short term obligations. Maximum tenure of the advances is 12 months however majority of the loans are repaid within 120 days. If the report of "CARE", one of the rating agencies to this issue is believed to be correct then; the average ticket size of the loans sanctioned is 30,000. Rate of interest charged on such loans is usually in the range of 12%-30%. It mainly depends on the "Loan to Value" (LTV) factor.

Total assets under management of the loan portfolio have grown from 175.41 crore in March 2008 to 6,383.55 crore in March 2011, a gigantic ~3500%  jump. During the same period, customer base too has increased substantially from 2.2 lac to 11.9 lac. Net profit of the company surged 155% (From 90.4 crore to 231.4 crore) on Y-o-Y basis during the year ended as on March 31, 2011. Due to the inherent strength of the gold loan business and the operational efficiencies of the company, the net NPA ratio was just 0.11% for the year ended as on March 31, 2011. Net NPA (Non Performing assets) ratio has not gone above 0.20% of the gold loans, which is considered fairly good. Company is adequately capitalised which is reflected through its high capital adequacy ratio of 29.13% (against the 15% prescribed by RBI) as on March 31st 2011.

Thus, in order to meet the funding demands of its rapidly expanding core business, MFL is currently offering Secured Non-Convertible Redeemable Debentures (NCD) of face value of 1,000 each at par aggregating to 400 crore along with a green shoe option to retain oversubscription up to 375 crore.

 

The details of the offering (NCD) are as follows:

 

Issuer	Manappuram Finance Limited
Offering	Public Issue of NCDs aggregating to 400 crore with an option to retain over-subscription up to 350 crore for issuance of additional NCDs aggregating to a total of up to 750 crore.
Rating	‘CARE AA-' by CARE & ‘ BWR AA-’ by BrickWork
Security/ Security cover	Pari Passu with other secured creditors and priority over unsecured creditors; 1.10 times
Face Value	1,000 per bond
Issue Price	At par ( 1,000 per bond)
Minimum Subscription	5 Bonds and in multiples of 1 Bond thereafter
Tenure	Option I: 400 Days Option II: 24 months
Coupon rate	Option I: (cumulative option) Yield to maturity is 12.00% p.a. for category I, category II and category III investors. Option II: Coupon rate of 12.00% p.a. for category I, II investors, 12.20% p.a. for category III investors.
Reserved Individual (RI)	Individuals applying for NCDs aggregating to a value not more than 5 lacs
Unreserved Individual (UI)	Individuals applying for NCDs aggregating to a value more than 5 lacs
Interest Payment	Semi Annual, calculated from the deemed date of allotment.
Trustee	IL & FS Trust Company Limited
Listing	BSE
Depository	National Securities Depository Limited and Central Depository Services Limited
Registrars	Link Intime India Private Limited
Issuance	Demat form only
Issue Open Date	August 18, 2011
Issue Close Date	September 05, 2011
Deemed Date of Allotment	Deemed date of allotment shall be the date of issue of the Allotment Advice / regret.
Eligible Investors	Category I	Category II	Category III
	Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the NCDs Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorised to invest in the NCDs Venture Capital funds registered with SEBI Insurance Companies registered with the IRDA National Investment Fund Mutual Funds	Companies; bodies corporate and societies registered under the applicable laws in India and authorised to invest in the NCDs Public/private charitable/religious trusts which are authorised to invest in the NCDs Scientific and/or industrial research organisations, which are authorised to invest in the NCDs Partnership firms in the name of the partners Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008	Resident Indian individuals Hindu Undivided Families through the Karta

Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.

 

Investors’ will also have the following options available at the time of subscribing to the issue:

 

	Option I			Option II
Options	RI and UI			RI and UI
Minimum Application amount in Rs.	5000			5000
Thereafter in Multiples of	1,000			1,000
Tenor	400 Days			24 months
Interest Payment	Cumulative			Semi-Annually
Coupon	April 1 every year			April 1 every year
Coupon	N.A.			12.20% per annum
Tax slabs (%)	10.3	20.6	30.9	10.3	20.6	30.9
Effective Yield -Pre Tax (%) *	12.00	12.00	12.00	12.57	12.57	12.57
Post Tax Returns (%) *	10.77	9.54	8.31	11.24	9.92	8.60

(Source: Draft prospectus registered with SEBI. & PersonalFN Research)

 

Well, after reading the details of the NCD (as provided above), there may be still some more questions popping up, which are answered hereunder:

 

• Will I get any tax benefit if I invest in these bonds?
  
  No, these bonds do not entitle you to any tax benefit nor are these any "infrastructure bonds", which make you eligible for an additional tax deduction under section 80 CCF.
   
• What is the Tax Treatment of interest on these Bonds? Are these Bonds Tax Free?
  
  No, the interests on these bonds are not tax free - they are chargeable to tax. The interest income will be taxed under "income from other sources", and will be brought to tax at the respective income tax rates you fall under. No tax will be deducted at source as these bonds are issued a demat form and are listed on the exchange.
   
• Can a minor apply to these bonds?
  
  Yes, a minor can apply for these bonds, but only and only through a guardian.
   
• Can one apply in joint names?
  
  Yes, one may apply in a joint name. However, the demat accounts will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
   
• Who will get the interest in case of joint application?
  
  In case of joint application, interest will be accounted to the first holder only.
   
• My demat account is in joint name, but I want to apply is a single name?
  
  In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
   
• If I’m an NRI can I invest in these bonds?
  
  No, NRIs are not eligible to invest in these bonds.
   
• Is there a lock-in period while investing?
  
  No. There is no lock-in period for these bonds.
   
• In whose favour the cheque is to be made?
  
  Cheques/Drafts have to be made in the favour of "Escrow account- Manappuram Bond Issue" and crossed "A/C PAYEE ONLY".



 

OUR VIEW:
 

In our opinion the yields on investment offered by MFL are attractive. The credit rating too, allotted to the issue is stable (‘CARE AA’- by CARE and ‘BWR AA’- by Brickwork). Minimum ticket size has purposefully been kept low at 5000 to encourage the retail participation.

Vastly experienced management, rapidly growing gold loan business, robust Capital adequacy ratio, higher net profit margins and lower net NPA ratio indicates adequate safety for the investors of this issue. "Secured" nature of the debentures gives the investors a right on parity with the other lenders to have a claim on the assets of the company at liquidation of business.

However, you should also consider the risk associated with the investment. Although company has the presence in 22 states of the country, approximately 75 per cent of its branches and approx. 86% of the AUM comes from the southern states. This makes it vulnerable to the risk of concentration.

The company lends against the gold collaterals. Any significant fall in the gold prices may severely affect the risk profile of the company. Average loan to value (LTV) ratio of the company is 75%. Besides, company builds a cushion in the form its own profit margins. At present, we believe, owing to sovereign debt conundrum in the west, gold prices would remain more or less firm. The issue has a tenure of 400 days and 24 months which is considered relatively short in the corporate bond market. Present business model of the company looks sound and unless something unforeseen happens, its credit profile too would remain stable.

Considering all odds, we recommend investors to subscribe for the issue but only after running a check on your investment holding capacity.

 

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Comments
chhabragirish@yahoo.com Aug 18, 2011 Isn't it correct that in case of Option 1, you'll pay flat 10% tax under LTCG and not as per applicable slabs?
rajiv123@gmail.com Jan 07, 2013 is it correct to invest my money,in MF???????????how can i trust and security ??????????????

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